Facility management firms add services to meet new demands

While outsourcing has blurred the line between traditional facility management roles and property management roles, more FM firms are rethinking their mix of services to keep up with changing corporate real estate needs.

Attempting to refocus corporate resources on core businesses, American companies over the past decade have turned to outside vendors to take care of everything from database management to real estate. Generally called outsourcing, the idea has been to let third-party service providers with expertise in particular fields manage noncore tasks, thus, giving companies the opportunity to reduce personnel and save capital.

"Outsourcing has played a key role in the management of corporate real estate for years as a strategy to reduce operating costs," says jack Koon, president/Southern division of PM Realty Group, Houston. "Since 1990, however, more focus on the outsourcing of noncore internal processes has allowed corporate real estate departments the opportunity to pursue other value added in-house activities. However, the type of corporate real estate services outsourced and the relationships with service providers have undergone fundamental changes."

As companies decided to go beyond out-tasking specific chores into more of what has become strategic alliances, where a third-party company, provides a myriad of services, some of the traditional management roles have become less distinct. Probably, nowhere is this more apparent than in facility management, which encompasses the blue-collar sounding jobs of maintenance, mechanical, electrical and plumbing work, sometimes with the additional chores of landscaping, stewardship of telephone switchboard, security and management of the mailroom and cafeteria vendor.

None of these jobs have disappeared, but the traditional facility management function, especially in regards to corporate outsourcing, has been lumped together with other property management duties such as tenant services, leasing, lease administration, contracting, space planning and strategic planning. More often than not, companies that do both facility management and what was called property management simply combine the terms under the title of real estate management, or even just property management.

"At the real estate institute, we are starting to refer to our members as real estate managers, because they have all sorts of jobs - property manager, asset manager, on-site manager, facility manager," observes jack Gallagher, president of the Institute of Real Estate Management (IREM) in Chicago and a senior vice president with Polinger Shannon & Luchs in Chevy Chase, Md. "If you wrote those job descriptions 10 years ago, those titles really defined what they did. Today, you will see a lot of overlapping functions."

Real estate companies that had expertise in specific areas of the industry have combined if for no other reason than to expand the number of services that can be made available to any one client. Chicago-based Property & Facilities Management Group (PFMG), for example, is a joint venture between Colliers, Bennett & Kahnweiler Management Co., which was a leading industrial leasing, management and consulting firm, and U.S. Equities, a company that has expertise in high-end commercial property management, leasing and disposition.

"Today, many corporate real estate departments are looking beyond conventional approaches to explore more beneficial outsourcing models," says Koon. "Joint venturing and strategic alliances can deliver a tightly integrated network of complementary services or service organizations whose core competence and total business focus are providing services that are better, cheaper and faster."

In many jobs, service providers are both property managers and facility managers, says Anthony DiBiase, general manager for PFMG. "It is hard to separate those jobs anymore. There is not going to be a clear-cut difference between a real estate person and a facility person. It's going to be one and the same. That is where the future of this business is heading."

In February, RMC Group and Lasalle Partners Management announced the formation of a limited partnership called McCoy Realty Group, a minority-owned firm providing property and facility management and leasing services. "Property management, asset management, leasing - that is all blurring now, and the jobs will continue to blend," says Richmond McCoy, general partner, chairman and chief executive of McCoy Realty, because different managers are pushed into other duties that were once parts of other functions. "Property managers were being pushed into becoming asset managers in terms of the types of accounting they were required to do."

This is not to say that some national companies don't still remain traditionalists. Theodore Duda, a regional vice president for Koll in its Atlanta office, says his company still maintains a distinction between property management and facility management. "If it's a location that is basically 100% occupied by a tenant who either owns or has a triple-net lease, we consider that to be facility management. If there is a leasing function, or it is a multitenant-type building, then we would look at it as property management."

Duda also makes a further distinction: property management is a revenue function while facility management comes on the expense side of the ledger.

"Today, sophisticated property management service providers focus their services around adding value to the client's asset(s) from an investor's perspective and today's facility manager is really a corporate business strategist working with internal business units and senior management to bolster shareholder value," says Koon of PM Realty.

Trammell Crow Corporate Services still does traditional, contained facility management but, as its name implies, it also offers the full range of corporate real estate services and part of that has to do with the company's changing clientele. Five years ago, 95% of its work was with institutional clients, but that has shifted downward to 75%. A full quarter of Trammell Crow Corporate Services work is now with corporate clients.

With the corporate customer, there are no walls any longer (between management duties)", says Bill Concannon, president and CEO of Trammell Crow Corporate Services in Stamford, Conn. "Can one company manage the building operations and also help me with my portfolio management? The answer is yes. Can that company also help me with my planning in terms of how I lay out space and program that space for my employees? The answer is yes. Can that company also work with us across the United States? The answer is yes."

There are definite advantages that exist when you work with one single point of accountability, adds Concannon.

The relationship between the property manager and asset manager continues to evolve. Once looked at as two completely separate disciplines, many real estate professionals now recognize the complementary talents of both, observes Roger Kahn, senior director of property management at the Edward S. Gordon Co. in New York. "By providing a seamless array of services to clients, all systems run more smoothly as both the asset and property management teams work together to achieve the short- and longterm goals set by the property."

"It appears to us that as the ranks of the asset management staff have thinned, the workload has been transferred to the property manager," says Zipf of Jackson Cross. "Effectively, this causes the property management firm to have more highly qualified property managers who are more keenly aware of the business and financial implications of their decisions on a day-to-day basis than ever before."

Maybe the changes spurred by corporate outsourcing has been so extensive that a new name is demanded. That's how it appears to Ira Williams, a senior vice president at Axiom Real Estate Services' in Connecticut. He calls the extensive work that real estate service providers transact with Corporate America "alternative sourcing," because companies are looking for alternative ways of getting things done and are asking outside service companies to help.

"It seems like one firm after another is in the process of studying opportunities and looking at how they can improve quality," says Steve Ford, managing director of facility management at Cushman & Wakefield in New York. "Companies have let certain jobs go to independent providers, and now the menu has expanded. Companies are looking for more of a one-stop shopping approach to handle all those management services, lumping it altogether in a major portfolio and looking for one service provider."

Whatever the service provided by an outside vendor is called or how extensive it might be, the key to doing it successfully demands that the service provider operate as the owner's or the client's representative. Service providers must do things from the point of view of "what is important to the business," says joseph Mackil, a senior vice president with the Galbreath Co. in Columbus, Ohio. "We in real estate tend to think about real estate as being the most important thing. People in operating businesses really don't care about real estate too much. Our goal is to figure out what to do for real estate to help the company operate as effectively as it can in its business."

He adds, "The objective is not how much can I do on this transaction, but what can I do to make sure my corporate client is operating as efficiently as it can."